Asian Currencies: Which are the Strongest?

Asia is home to more currencies than any other continent on the planet. Because of this, there are a wide number of options for Forex traders. We’ll go over just a few of the region’s currencies while looking at their past performance and future prospects.

The sentiment toward most Asian currencies is bearish in general. But some look better than others. The Thai Baht, for example, has been surprisingly strong over the past several months. In contrast, the Malaysian Ringgit has tanked.

While we’re on the topic, let’s examine why Thailand and Malaysia, two neighboring countries with similarly sized economies, each have a currency which performed in a completely different way from the other.

The Thai Baht and Malaysian Ringgit

The reason for the Ringgit’s poor performance is rather simple. Malaysia’s economy, even if not completely reliant on, has a large dependence on the oil and gas industry.

In fact, the country is the largest producer of palm oil in the world. Petronas, its national oil company, pays around 40% of Malaysia’s federal budget through its taxes.

The Ringgit is considered an “oil-based currency”. As prices fall below US$50 a barrel, the value of exports decline, Malaysia’s tax-base is weakened, the current account surplus narrows, and the Ringgit underperforms as a result.

Thailand’s case is a bit more complicated. The country had military coup in early 2014. But while this normally would frighten investors and lead to a lower baht, Thailand’s currency instead is one of Asia’s best performing.

Reasons for this include everything from Thailand’s large tourism industry which suffered far less than oil prices have, to weak export data over the past several years.

The latter is not a good thing for the Thai economy. However, it helped the baht perform better than currencies of more export-dependent countries in Asia. Most of them saw a large spike of falling exports rather than Thailand’s gradual decline.

The Japanese Yen

It wasn’t a secret that the Japanese Yen would depreciate. As early as 2012, the Bank of Japan (BoJ) announced an inflation target of 2%. This is a goal economists say would require the Yen to be devalued by 15% a year. It implies a policy of quantitative easing.

But Forex traders were (often pleasantly) surprised to see the Yen decline far more than intended. Hovering around 75 to the dollar for most of 2012, the currency saw lows of over 120 to the dollar in late 2014.

It was intended for a lower yen to boost Japanese exports, and it worked to an extent. The Japanese trade deficit was at its lowest level in 18 months in December of 2014.

Where will the yen go from here? It largely depends on the BoJ’s next move. For what it’s worth, inflation in Japan is still only at 0.5%. This is far from where the country’s central bank wants it.

The Chinese Yuan

The Chinese Yuan makes more headlines than all other Asian currencies. This is expected since Beijing’s plans for the Yuan may shape the very foundation of the world economy.

China has made it very obvious they want the Yuan to be a major trading currency. They’ve taken steps to make this goal a reality.

Perhaps the most important of these steps is gathering international support. Since 2013, China has made a huge number of partnership agreements with countries such as Singapore, the United Kingdom, Australia, Russia and others.

These deals range from currency swap agreements with over a dozen countries, to even bonds in London and stocks in Singapore denominated in Yuan. All of this helped propel the Chinese currency to the fifth most traded in the world.

The Yuan has appreciated steadily against the US Dollar in recent years. This is partially due to pressure from the United States and concerns that Beijing manipulated its value to drive export growth.

However, the trend reversed and the Yuan is falling against the Dollar once more – along with almost every other currency in Asia.

The future direction of the Yuan depends. Will the Chinese government let market forces dictate the Yuan’s value, or will they intervene to help export growth?

What About the Other Asian Currencies?

It’s difficult to cover all Asian currencies in a single article. There’s over 70 of them. Here are some brief highlights of some of the region’s more prominent ones though.

The Indian Rupee is one of the few currencies which appreciated against the dollar since 2014. It was aided by a faster growing Indian economy and the expectation that a new, business-friendly government will support growth.

The Singapore Dollar has fallen by over 10% against the dollar in the past year. Investors remain concerned about a potential property bubble and weak manufacturing data.

The Indonesian Rupiah continues its long decline. It depreciated against the US Dollar rapidly since around 2011 and the pace has neither slowed nor accelerated.

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About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's experienced with trading stocks and buying property in Thailand, Cambodia, and elsewhere. He's been featured in publications such as Forbes, Nomad Capitalist, Property Report, and Seeking Alpha. Download his free investment guide by clicking here.